The SIX Swiss Exchange is exploring the creation of a pan-European multilateral trading facility for fixed income, according to two people familiar with the project.

The exchange, which declined to comment, is in discussions with two European banks and a technology firm regarding the venture, one of the individuals said.

New regulations are likely to push more bond trading, which is traditionally done over the phone, on to electronic platforms.

Several firms are drawing up plans to profit from this “equitisation” of the fixed income markets, which experts believe will revolutionise how products are traded.

Financial News has also learnt of another venture for buyside bond trading, although it is in the very early stages.

Meanwhile, Vega-Chi, an international operator of convertible and high-yield debt trading platforms, is negotiating a multimillion-dollar investment from new and existing investors to fund expansion into new asset classes, according to two individuals with knowledge of the discussions.

Constantinos Antoniades, the firm’s chief executive, declined to comment on the new funding, but said: “We have seen a sudden increasing interest in electronic fixed income trading over the past six months.

As banks have become less able to provide liquidity and constrained by capital requirements, institutions are now assessing which electronic solutions to support. This is a big difference from two years ago, when electronic was seen as a niche tool.”

MarketAxess, a US-based operator of electronic bond trading platforms, is also on an expansion drive after its $42m acquisition of data firm Xtrakter earlier this month.

Speaking to analysts two weeks ago, Rich McVey, its chief executive, said: “If we can find other businesses that fit with our strategic vision and our service to clients we will continue to be very interested.”

Structural shift

The platforms hope to capitalise on a structural shift in the US and European bond markets that are being reshaped by new regulations, including the Volcker Rule in the US and, in Europe, the review of the Markets in Financial Instruments Directive and newbank capital requirements ushered in under Basel III.

Mifid will force a slew of new instruments on to electronic order books in a bid to transform the over-the-counter markets into a transparent, exchange-like set up.

At the same time, new capital requirements have made it too expensive for banks to hold the fixed income inventory they need to support OTC marketmaking businesses.

Will Rhode, director of fixed income at Tabb Group, said: “There has been a fundamental shift in the OTC fixed income model driven by the growing cost of capital combined with low interest rates which have changed dealer attitudes towards inventories.

The fixed income business no longer makes economic sense, meaning the question of how to create alternative liquidity models is very much of the hour.”

Dealers are “backing away from the market”, according to one buyside trader, with US corporate bond inventories hitting a nine-year low this year, according to the Federal Reserve.

Many banks, along with fund managers, exchanges and independent platform providers, are exploring a range of electronic bond trading models to plug the liquidity gap left by the decline in traditional marketmaking.

These platforms aim to aggregate liquidity from multiple institutions in a single pool, bringing together buyers and sellers that would not otherwise find one another in the OTC markets.

Some ventures plan to aggregate liquidity from the sellside while others believe bypassing the dealers and targeting the buyside – the ultimate source of both supply and demand – is a more effective strategy.

The race for market share in electronic bond trading was kick-started by BlackRock, the world’s largest money manager, which unveiled its Aladdin Trading Network for buyside firms, in April. Goldman Sachs also launched its buyside bond platform GSessions in June.

However, some buyside managers are sceptical and argue that the launch of so many new venues will fragment liquidity.

One fund manager said: “You may only have a bond that trades once a day or once a month. You can’t have an active crossing network in these bonds. There is still a need for marketmakers.”